Tag Archives: Team

Meeting a founder’s team

Most investors state that, together with the market, founders are one of the two key determinants of a startup’s success. While this is true, a founder is only as good as the team they’ve built. As a result, meeting a founder’s team, consisting of the founder’s direct reports and any other key team members, is a great way to evaluate the founder and their startup.

The first benefit of meeting a founder’s key team members is that they reveal how good the founder is at identifying and attracting talent. The more impressed you are with a founder’s key team members, the more impressive the founder who built the team.

The second benefit is in observing the interactions between the founder and their key team members. Who speaks more often on issues pertaining to the team member’s responsibility? How does the founder address their team and vice versa? Do the founder and team members seem perfectly aligned, which is usually a sign that they are not expressing their differences in viewpoint, or do they point out where their perspectives are different and how they’ve decided to move forward to either test out the different hypotheses they hold, or despite their different perspectives?

Meeting a founder’s team in a series of one on one’s, together with holding a group session in which each key team member participates, is a half to one day exercise that greatly improves the quality of an investor’s investment decision.

Group vs self motivation

Even if you’re passionate about something, it’s challenging to sustain your individual motivation level across time. There are times when you feel very motivated, as well as troughs in motivation.

The benefit of being part of a group is that your group members can pick you up when you hit a trough in individual motivation. The combination of support and, depending on the environment, healthy competition that they provide are antidotes to a motivational trough.

The less you like doing something, the greater the positive motivational impact of doing that thing as part of a group.

Exercising is a clear example of this. You exercise harder when there are people around you than when there are not. This effect is particularly pronounced when you’re part of the same training class.

The effect also extends to your personal and professional life.

The investment memo

An investment memo is a very useful tool to help collect your thoughts in advance of an investment decision. It’s basically a document that summarizes the important factors which help inform an investment decision.

In the context of a startup, these factors include a minimum of the team, the market, traction (if the company has it), and the investment terms. It can also include case-specific factors like likely future expansion areas and regulation.

Rather than invest solely based on consuming the information presented by the company you’re evaluating, the advantage of investing based on an investment memo that you prepare is that it forces you to articulate your understanding of the company. Doing so may help you identify weaknesses in the argument you’re trying to make which may lead you to reconsider your conviction in the investment, holes in your knowledge which you need to go back and address, or alternative approaches to areas like the team, market, and investment terms which you may want to discuss with the company.

In terms of format, investment memos tend to come in the form of Word documents or Powerpoint presentations. I prefer written text because it promotes substance over style and forces you to articulate your thoughts at the level of depth enabled by sentences rather than the more superficial level which results from using bullet points.

And an investment memo doesn’t need to be long. If you’ve done your research and thought about the startup at length, 2 to 3 pages of crisp text written in half a day is all it takes.

The resulting improvement in the rigor of your thinking and the quality of your investment decision makes the time investment well worth it.

Startup acquisitions in emerging and developed startup ecosystems

There are four reasons for an acquirer to buy a startup. These are its team, product, revenue, and profits.

If your team is good enough, you might receive an acquisition offer because the acquirer wants your team to be part of their team. You don’t even need to have launched your product.

A second reason a company might want to buy you is for your product. This is one step further along than having built a team.

For a team or product acquisition to take place, two conditions are required.

First, the product that the team has the potential to build or has already built needs to be something that the acquirer can’t or would find very challenging to build in-house. This tends to happen in businesses where the value lies in the technology itself (for example software) rather than businesses that use technology to enable another behavior (for example e-commerce).

Second, the team or product need to have the potential to scale enough to pose an existential threat to the acquirer. This requires a strong startup ecosystem including deep funding and knowledge of how to scale startups.

Of the geographies we invest in, we rarely see team or product acquisitions in Turkey. This is because most Turkish startups use technology as an enabler rather than as the core value creator and the local startup ecosystem doesn’t have sufficient funding or knowledge of scaling startups for these startups to pose an existential threat to large companies. I’m using Turkey as an example because that’s where we invest, however the same is true for other emerging startup ecosystems across the world.

Team and product acquisitions do take place in developed startup ecosystems like Silicon Valley, Boston, and New York where both of these conditions exist.

The third reason for an acquirer to buy a startup is its revenue. In other words, even if a startup isn’t profitable, an acquirer may want to buy it for its customer base and path to profitability.

And the fourth reason is for its profits. This one is pretty self-explanatory.

Acquisitions made for a startup’s revenue and profits don’t require that the target be a company where technology is the core value creator. Using technology as an enabler is enough. And they also don’t require that the company have the potential to pose an existential threat to the acquirer. The company’s customers, revenue, and perhaps profits already show that this is the case.

As a result, we see acquisitions driven by revenue and profit motivations in startup ecosystems across the world.

But once a company has significant revenue and a path to profitability or is already profitable, is it still a startup? In other words, do we see startup acquisitions in emerging startup ecosystems?

This year’s NBA finals

Last year, the Golden State Warriors won the NBA championship by defeating the Cleveland Cavaliers 4 games to 2.

In a post about last year’s finals, I wrote that although the Cavaliers’ LeBron James is the best player in the world, his individual performance wasn’t enough to overcome the Warriors’ collective performance. Specifically, I wrote that “… nine different Warriors [scored] in double digits at least once during the series …”

This year, the Cavaliers won the same match up 4 games to 3 after falling behind 3 games to 1. And a big part of the reason why is because two things changed. And these things are related to each other.

First, LeBron James was more humble. Although the Cavaliers fell behind 3 games to 1, giving the Warriors 3 chances to close out the series, LeBron James didn’t respond by stating that he’s the best player in the world. This time, he recognized that for Cleveland to win, he needs his teammates. This was reflected in the second change whereby six Cavs scored in double digits at least once during the series.

While that’s not quite as impressive as the nine Warriors who showed the same performance in last year’s finals, basketball is played with five players. So six players, including the best player in the world, playing well was just enough.

Despite their improved team play, the Cavs still could have come up short. The final game of the series was tied at 89 with 1 minute and 40 seconds remaining, and Andre Iguodala of the Warriors seemed to be headed for an easy layup when LeBron James came, seemingly out of nowhere, to block the shot. The Cavs went on to win 93-89.

So having the best player in the world on a great team helps. Here’s the block to recognize that.